You don't understand what crowd funding is or how it works

[cthree]

I posted this as a reply to another thread but I think it bears repeating again. Most people, the vast majority of people, don't have a clue about what crowd funding is, what it's for, how it works or why it exists in the first place.

Do you wonder why craziest ideas get funded and sensible ones don't? Why your campaign for a perfectly reasonable product failed with next to no support while some other obvious nut job got millions? If you answered yes to either then you don't know jack and you would do yourself a huge favour to read on while I explain it to you. Hopefully, unless my words fail me, you will "get it" in a matter of a few paragraphs and know the right answer to the two questions previous and it will actually make sense. Here goes nothing.

Buyers

If you are "buying" things on Indiegogo then you are doing it wrong. Crowd-funding is just that: funding. Getting one or some of the things you are helping to fund the creation of is a "perk", they don't call it that by accident, it's not a purchase. When you give $125 to fund your local PBS affiliate you get a handy tote bag and a DVD of bird songs as a gift, a thank you. You aren't purchasing the merchandise, you are supporting a cause which is commercially insupportable. This IS the model crowd-funding and Indiegogo is based on.

If the project fails to produce the thing they asked for the money to do then that's the way it goes. You didn't back the project to receive goods and services, you backed the people behind the project to try their best to accomplish their goal. You decide which projects and more specifically which people are worthy of your support. You have to decide if it's something you care about. Is it something you think the people behind the project have a reasonable chance of being successful at? That right there is the essential point: when you back a project on Indiegogo or Kickstarter you are funding the un-fundable. Crowd0funding is not another way to fund a business opportunity. It is a way to fund something which no self respecting commercial interest would consider funding. It is a way to fund crazy ideas which but otherwise worthwhile ideas. If you are looking to "buy" a gadget then wait until they finish commercializing them and then purchase them on Amazon or Best Buy, ready to order. That isn't what crowd-funding is all about.

If you are crowd-funding something because you don't want to invest you own money or you don't want to borrow the money or you don't want to go find a venture capitalist to fund then you are going it wrong. The whole point, and if you read Indiegogo's mission statement you'll see, is to fund the otherwise un-fundable. Indiegogo is where you turn when the bankers laugh at you and when capitalists say "that's a cool idea but I'm not giving you the money to do it" That's why crowd-funding exists. Some things just can't attract commercial funding so they ask the general public "the market" or "audience" if they would help make it happen. There is a reason why there are perks which don't include getting the thing that is being funded. There is a reason for the $1 perk which gets you nothing but a thank you. If you didn't know why those things were there before, now you do.

The reasons sensible and viable projects fail to attract funding is they are trying to sell a product rather than achieve some higher purpose through the creation of the thing. Kickstarter is not a store where you shop. Many project can turn out to be very lucrative but only if they appeal to and excite a broad audience. When people give you money on Indiegogo they do so because they like what you are trying to do and they want to help you accomplish it. They might want the thing you are making but they many not. Successful projects always get a large percentage of their funding from non-product perks, the $1, $5, $10, $20 and so on. Rule number #1 at Indiegogo is always have a $1 perk. They aren't just making that up.

In addition to giving you some money, backers more importantly spread the word about your project and how cool they think it is to all their friends and followers. That's why they are successful!! Unless backers share their enthusiasm for your project on Facebook and twitter it will flop. They aren't going to do that unless they think others would be interested in your cool project too, it needs to be tweet-worthy. They become advocates for and reflectors of your message. That gets you more funding and that makes for successfully funded effort.

If you don't get why some crazy projects are way oversubscribed and other perfectly sensible ones have almost zero backers it's because you don't get crowd funding. You will be burned because you don't understand what you are getting into when you hand over your credit card info. The Indiegogo blog explains much of this in detail. I used to think about it like everyone else does until I had a conversation with one of the founders of Indiegogo at an event and she properly explained the concept to me. Now I get it and it makes perfect sense to me now.

If you and your high school science club want to build a satellite and launch it into space to search for alien life on distant planets then you do it on Indiegogo because nobody else is crazy enough to fund that shit. No prototype required. Yes, this was a real project I myself contributed $65 toward and as a perk I get a picture of a picture of me in space with the earth in the background. Will I ever get it? I dunno, it would be nice but I gave these kids the money for them to try, not necessarily succeed. Richard Branson gave them $100,000 for largely the same reason.

Don't dump on crowd funding, you just didn't understand it. Now that you do you can change the way you think about who you back and what you can reasonably expect in return. Read this http://blog.indiegogo.com and know what it is you are paying for. It's probably not what you think.

[Mechatrommer]

my answer to your 2 questions is also yes. but i think i already knew everything you highlight except...

You didn't back the project to receive goods and services, you backed the people behind the project to try their best to accomplish their goal

or did i misunderstand something?

[MacAttak]

Sorry to burst your bubble, but you're clearly unfamiliar with product-centered crowdfunding and hardly an expert on the topic. There really isn't a need to get up on a soapbox and pontificate your narrow opinions as though they were hard facts, which is pretty much all your speil is about.

I suggest you keep to IGG and continue giving your money to those campaigns, but don't preach to me about who is and is not deserving of my financial support.

[cthree]

It is your view that is narrow which is why it leaves so many unanswered questions about what happens on crowd funding sites. It is your arrogance which judges backers of projects you think unworthy as being stupid or naive and believes other people should have your values and see the world as you do. This is the Internet, It's one big soapbox. I shared what I know, you decide if you care. I will carry on whether you like it or not. I didn't tell you which projects to support, and even if I did, which is entirely my right, your exclusive right is to ignore me. I can live with that.

[cthree]

my answer to your 2 questions is also yes. but i think i already knew everything you highlight except...

You didn't back the project to receive goods and services, you backed the people behind the project to try their best to accomplish their goal

or did i misunderstand something?

I think that is a bad edit on my part. I wrote it rather late (early?) and I don't think I did a great job buttoning up all the loose ends.

[Corporate666]

I pretty much completely disagree with almost everything you wrote.

I'd also say the facts directly contradict the vast majority of what you've said.

There is the theory, the warm-fuzzy, the glimmer in the eye.  Then there is the cold hard reality.  The reality is all that matters, and I think your post is all about the theory and the warm-fuzzy.

[Mechatrommer]

yes, although i dont have a proof but theoritically i disagree with this...

when you back a project on Indiegogo or Kickstarter you are funding the un-fundable. Crowd0funding is not another way to fund a business opportunity. It is a way to fund something which no self respecting commercial interest would consider funding

real business costs millions and how many person are willing to face and risk bankruptcy if something bad happens? and when you are talking millions you also will talk about "employees", marketing support distribution etc, how many of you are willing to extend your "hobby" into deep sheet managerial matter.

[mikeselectricstuff]

If you are crowd-funding something because you don't want to invest you own money or you don't want to borrow the money or you don't want to go find a venture capitalist to fund then you are going it wrong.

Sorry but that is just bollocks. To say something is "wrong" is just blinkered thinking - there is almost never, in any context, such a thing as right & wrong, just more or less appropriate for a given set of criteria. 
There are many products that have too small a potential market, or not a sufficiently proven market to be attractive to mainstream finance methods, but still entirely viable as a one-man business
Crowdfunding combines market research and funding to determine the viability of a product in a way that is far more cost-effective than mainstream methods.
And product creators may simply not want the pressures and loss of control involved with outside investment. Maybe they want to put maximising quality or usefulness ahead of maximum profitability.
Nobody would claim it's perfect, as with any new thing there are teething problems that will get worked out as it matures.
It's just another tool in the box.

[fcb]

Crowd-funding is basically Darwinism in action..

1. If crowd-funding has a long-term future it will have a long-term future however - it might wither on the vine, it might morph into something else, it might carve out a little niche for itself, or it might stay exactly the same.

2. Crowd-funding companies (Kickstarter, IGG, etc..) will be subject to the same evolutionary forces - however I wouldn't bet against Kickstarter being there for the long term (like paypal, ebay, google) and I don't think a strong competitor exists yet.

3. Crowd-funding is a great way to see what the 'early-adopters' are hot for - it opens a niche up and starts the bun-fight to fill it (3D printers, watches, etc...). Doesn't prove there is a significant market, but like Mike says, can create some small businesses. Perhaps it'll boot the next Sony.

4. You can't tell people what crowd-funding is, or how to use it, they'll make up their own minds and vote with wallets. So far it looks like a great way to test a prototype in the market and get some $ to finish dev and make a batch or two.

Personally I think it'll split and you'll see a more tech orientated kickstarter type company with some more management tools associated with it to help reduce risks for funders.

[Stonent]

I wonder of KS or IGG would let me crowd-source the creation of a crowd-sourcing company to compete against them?

[fcb]

"In order to understand recursion, one must first understand recursion"...

Why not if it's within the rules.

[Corporate666]

I said before I totally disagree with almost everything in the original post - I wanted to clarify.

The idea that people are not "buying" on these sites is wrong.  The owners of the site like to push the idea that it is "funding" and not buying, but it is clear that people putting money in are not "investing because they just want to see something happen" but rather they are putting money in to get a tangible product.  It doesn't matter what the "theory" of crowdfunding is (of course, according to the site owners), all that matters is the reality.

The idea that "if the idea never happens, that's just the way it goes and you never backed to receive goods or services" is just pure bullshit.  Those soliciting money have a legal obligation to produce that which they promise.  It is not simply taking a gamble on an idea - it is a commitment they are legally responsible for, and creators are on the hook to deliver "or else".

The idea that crowdfunding is for products which are otherwise unfundable is also bullshit.  I have run 2 crowdfunded campaigns, both of which were perfectly fundable either by myself through my business, or through existing investment/banking relationships I have.  The same is true of most projects.  The reality of crowdfunding is not about needing the money, but rather mitigation of risk (getting the money before you have to deliver), free advertising/sales (doesn't cost anything to be a creator), and generally just as a pre-order mechanism.  That there are countless projects which either do not need the funding or which have received outside funding prove the idea of "funding the unfundable" wrong.

The idea that the $1 perk is just to do a small part to get something done is not true.  The perk level exists for people who do not really care to put up much real $$, but just want to have access to the updates and comments going forward.  That is why I have sometimes invested $1, just to be able to keep up and read updates.  If it was truly about selflessness and people just wanting the idea to happen, then people would be donating $20 or $100 without choosing perks. In general, that does not happen.

The idea that people give money to help you due to feelings of generosity/charity and often don't want the perks is one of the most outrageously untrue things I've ever read on here.  Absolutely not the case at all.  Success of a project is completely unrelated to "how much people want to help you out" and entirely related to how product design/marketing has worked since the dawn of capitalism.  If a project is something people want, they will fund it to get the perks.  If it is not something they want, they won't.  There are no $1,000 projects that fund to $1,000,000 just because the creators are real swell people, whereas awesome products people want go unfunded because they didn't address the human element.

The idea that successful projects always get a large percentage of their funding from the non-product perks is the second most outrageously false thing I've ever read on here.  Absolute bollocks.  Look at any of top 10 projects on either site and the proof is before your eyes - the % of people funding with nothing in return is minute and mostly at the $1 "so I can get updates" level. 

Honestly, whenever someone says "don't dump on X, you just don't understand it", it's like the government telling you they are here to help.  Theory pales in comparison to reality.  Ideology is irrelevant next to practice.  The practice is that, regardless of what KS or IGG say, people fund product projects because they want the widgets the creators are promising them.  That is universally true, without exception.

[snoopy]

It is your view that is narrow which is why it leaves so many unanswered questions about what happens on crowd funding sites. It is your arrogance which judges backers of projects you think unworthy as being stupid or naive and believes other people should have your values and see the world as you do. This is the Internet, It's one big soapbox. I shared what I know, you decide if you care. I will carry on whether you like it or not. I didn't tell you which projects to support, and even if I did, which is entirely my right, your exclusive right is to ignore me. I can live with that.

The way you have described it sounds like a potential breeding ground for scam artists to sell worthless ideas to gullible people that would otherwise have no prospects of any sort of commercial interest. Sort of like selling a refrigerator to an Eskimo

regards

[MacAttak]

It is your view that is narrow which is why it leaves so many unanswered questions about what happens on crowd funding sites. It is your arrogance which judges backers of projects you think unworthy as being stupid or naive and believes other people should have your values and see the world as you do. This is the Internet, It's one big soapbox. I shared what I know, you decide if you care. I will carry on whether you like it or not. I didn't tell you which projects to support, and even if I did, which is entirely my right, your exclusive right is to ignore me. I can live with that.

My arrogance and judgement of others? Who was it that started this useless thread? Even the title of this thread reeks of hubris.

I don't care what campaigns you or anyone else supports. It's your money. Do whatever the hell you want to with it. I don't care if you spend your cash on blow and hookers. And I certainly don't care what crowdfunding campaigns you support. How is that in any way "narrow"? I've only said that I won't support scammer-friendly platforms like IGG's "Flex Funding", and that I expect someone asking for money to produce a product to actually be ready to produce that product and have already done their homework. They should have something to show for it other than a 4 minute video pitch. Those are my expectations in a funding campaign. Again, how is that in any way telling you what to do?

And no, you didn't share what you know. You shared what you believe. Belief does not equate to fact.


I'm not ignoring you, because I'm pretty sure you would interpret that as some weird kind of validation in whatever bizarre universe you are living in.

[cthree]

Dude, don't get all mad. Put the gun down and walk away. Do you normally freak out when you read something you don't happen to agree with?

[cthree]

It is your view that is narrow which is why it leaves so many unanswered questions about what happens on crowd funding sites. It is your arrogance which judges backers of projects you think unworthy as being stupid or naive and believes other people should have your values and see the world as you do. This is the Internet, It's one big soapbox. I shared what I know, you decide if you care. I will carry on whether you like it or not. I didn't tell you which projects to support, and even if I did, which is entirely my right, your exclusive right is to ignore me. I can live with that.

The way you have described it sounds like a potential breeding ground for scam artists to sell worthless ideas to gullible people that would otherwise have no prospects of any sort of commercial interest. Sort of like selling a refrigerator to an Eskimo

regards

Isn't that the general consensus here? I don't address motivations, just mechanics. Email makes it possible for African royals to empty the bank accounts of the gullible. It's a use I frown upon.

Do you use email? Do you still have money in your bank account? I suspect you do on both counts. I know I do. I wonder why?

[westfw]

Don't be blinded by the (mis?)application of crowdfunding to electronics hardware projects.

There are some things that are very well matched to "crowd-funding."
For example, book publication.  I don't know how much any of you know about publishing, but it can be pretty difficult to get a publisher to front an author the publication costs of even a small run of a work.  The costs are not "huge", but are large compared to the profit that an author (or publisher) might expect.  By using crowdfunding, the author can secure enough pre-orders (essentially) to pay for publication costs without much risk.  Assuming that the content already exists, the risk to the buyer is also low (assuming a "meet goal or don't collect" policy ala kickstarter.)   One of the things I've funded was a paper-printed version of a webcomic, for instance.   For what I'd normally expect to pay for books of that size, I got my copies, and the whole process seemed straightforward and obvious.

Extending that thought, crowdfunding would seem to make sense for any project that hopes to recover costs without being particularly "profitable."  Getting "real" funding implies a business plan that pays my salary, my rent, and ongoing costs to run a business.  Getting crowdfunding for a project (theoretically) only means getting enough funding to cover a run of particular project.  Now, some would-be companies are going far beyond that, trying to fund the creation of an actual business.   But it seems to me that crowdfunding is best matched to funding "projects."

[Corporate666]

Dude, don't get all mad. Put the gun down and walk away. Do you normally freak out when you read something you don't happen to agree with?

I am not sure if you were referring to me?

If so, I'm sorry if it seems that I was mad.  I'm not at all... perhaps slightly sensitive to the "hey, you were just investing in an idea, you weren't buying something" - just because I feel many people (not you, some sleazy project creators) use that line to justify embellishing their project and also as an excuse to cut and run when they can't or won't deliver.

Sometimes things spoken seem to have intensity/anger behind them when written online that wasn't intended - my bad.

[mike1305]

There are some very legitimate crowd funding projects. My friends created and delivered this product:

http://www.kickstarter.com/projects/2093465669/jackhawk-9000-titanium-bottle-opener-sunglasses

LiFX is also completely awesome and is looking to be extremely successful:

http://www.kickstarter.com/projects/2093465669/jackhawk-9000-titanium-bottle-opener-sunglasses

As long as you do your due diligence, it's easy to weed out the nut jobs.

[Corporate666]

LiFX is also completely awesome and is looking to be extremely successful:

I have a beef with LiFX... I know Dave knows at least one of the guys there so maybe this is a touchy subject.  Full disclosure: I own a bunch of Philips Hue bulbs and I am also a backer of LiFX.

They took an existing product, gutted it, stuffed a few RGB LED's inside, made a totally mocked-up non-functioning part, rendered it and sold it as an "almost ready for production" part, which it was the furthest thing from.  Worse, they actually copied their competitors (Philips) images.  All the genuine concerns from backers went unanswered, as did virtually all the criticism afterwards.  They have stuck to estimates even when those estimates had not a hope in hell of being met (i.e. claiming to be going to production imminently right before Chinese New Year - and claiming in May to be going to full production July 8th).  The latest is that the first batch of test bulbs (which were supposed to have been done in March, then April, then May, then June) are now supposed to be done imminently, but there will be another 3-6 week delay for UL certification.  People asked about UL certification in March and they never replied.  Actually they haven't replied to any pointed questions ever, I don't think.

It remains to be seen what the quality of the finished product is like.  I am baffled that so many people talk about how great LiFX is when nobody has actually seen one, nobody has used one or tested one, and the project is months late (and will be more months until delivery), and the communication from the creators is total shite.

Maybe it's just me

I work in the LED lighting field (nothing to do with bulbs though) and I know how difficult the challenges LiFX faced were.  I was overcome with curiosity and took apart one of my Philips Hue bulbs.   Lumileds made special lime green Rebel LED to make the Hue product work.  I work closely with the Philips/Lumileds guys and I've talked to them pretty extensively about the Hue product.  There were some very substantial technical hurdles to getting the color mixing just right.  And they did get it just right... I get nice white light without any holes in the spectrum all the way from 2700k up to 6000k (or whatever the max is) and absolutely zero hot spots or color fringing, regardless of color or intensity.  A very difficult achievement indeed.  The downside, of course, is that needing the lime green LED's to always be making some light compromises how far into the red and blue end of the spectrum you can go... so Hue can get "pinkish red" to "pastel blue", but it can't do true blue or true red. 

LiFX uses a different approach - one they initially claimed they would not need to use - which was adding white LED's to existing RGB's to get acceptable white light.  What the brightness is like, say, in pure red, or pure orange, or pure yellow remains to be seen.  As does the light quality at, say 2700k, 5000k, 6000k, etc.  Will there be hot spots or holes in the spectrum that give bad color rendition and make the lights unusable for stuff like reading or even task lighting?

All that remains to be seen.  In some ways I worry that a small group of a few guys will be able to solve the very significant technical challenges that I know the Hue guys (with the massive resources of Philips behind them) had to solve.  And I also worry/wonder if expectations haven't been set so high that the end result can never live up to them.

We shall see.. but definitely too early to call the product awesome, IMO.

[EEVblog]

I have a beef with LiFX... I know Dave knows at least one of the guys there so maybe this is a touchy subject.  Full disclosure: I own a bunch of Philips Hue bulbs and I am also a backer of LiFX.

They took an existing product, gutted it, stuffed a few RGB LED's inside, made a totally mocked-up non-functioning part, rendered it and sold it as an "almost ready for production" part, which it was the furthest thing from.  Worse, they actually copied their competitors (Philips) images.  All the genuine concerns from backers went unanswered, as did virtually all the criticism afterwards.  They have stuck to estimates even when those estimates had not a hope in hell of being met (i.e. claiming to be going to production imminently right before Chinese New Year - and claiming in May to be going to full production July 8th).  The latest is that the first batch of test bulbs (which were supposed to have been done in March, then April, then May, then June) are now supposed to be done imminently, but there will be another 3-6 week delay for UL certification.  People asked about UL certification in March and they never replied.  Actually they haven't replied to any pointed questions ever, I don't think.

On the positive side, they had the sense to know that they could not produce enough product and ended their campaign very early even though they saw it was on track to become the biggest funded campaign ever at the time. They could have took a heck of a lot more money than they got, but they didn't.

They had to hire quite a few people to get the project done and into production, so yes, that shows they didn't have the skills in the initial group that started the project.

[Corporate666]

I have a beef with LiFX... I know Dave knows at least one of the guys there so maybe this is a touchy subject.  Full disclosure: I own a bunch of Philips Hue bulbs and I am also a backer of LiFX.

They took an existing product, gutted it, stuffed a few RGB LED's inside, made a totally mocked-up non-functioning part, rendered it and sold it as an "almost ready for production" part, which it was the furthest thing from.  Worse, they actually copied their competitors (Philips) images.  All the genuine concerns from backers went unanswered, as did virtually all the criticism afterwards.  They have stuck to estimates even when those estimates had not a hope in hell of being met (i.e. claiming to be going to production imminently right before Chinese New Year - and claiming in May to be going to full production July 8th).  The latest is that the first batch of test bulbs (which were supposed to have been done in March, then April, then May, then June) are now supposed to be done imminently, but there will be another 3-6 week delay for UL certification.  People asked about UL certification in March and they never replied.  Actually they haven't replied to any pointed questions ever, I don't think.

On the positive side, they had the sense to know that they could not produce enough product and ended their campaign very early even though they saw it was on track to become the biggest funded campaign ever at the time. They could have took a heck of a lot more money than they got, but they didn't.

They had to hire quite a few people to get the project done and into production, so yes, that shows they didn't have the skills in the initial group that started the project.

That's true... although if they didn't have the skills initially and passed off renderings and gutted competing products as their own, I wonder where they thought they were going with the whole project.  As an interesting aside, it's widely agreed that Lifx was the "straw that broke the camels back" and made KS require actual prototypes and not renderings - their project would not have been allowed under current rules.

We shall see how the finished product looks like... I must admit I am a bit baffled that everyone says Lifx is such a great project when nobody has seen it and it's months behind schedule, with months more still to go    I have a ton of respect for the Hue guys @ Philips, they set the bar very, very high... much higher than the average layperson would realize from just using the bulb.  It will be very interesting to see how Lifx stacks up.

[Bored@Work]

I must admit I am a bit baffled that everyone says Lifx is such a great project when nobody has seen it and it's months behind schedule, with months more still to go 

Maybe the same reason why everyone says the Arduino is such a great thing: Wishful thinking. Or in this day and age where $30 buys you 500 facebook likes, one could imagine other forces at play, too.

[randellV]

Crowdfunding allows the opportunity for artists to thrive. It  is a powerful tool to raise fund for creative projects. It's used for a number of things, from construction projects to crowdfunding medical bills. Be careful, though, as there have been people that have used the sites to run scams, but they are often caught out.

[Psi]

Given his profile picture, I wouldn't aggravate MacAttak if i were you.